BNPL Companies Say They Have Nothing To Hide From Feds

Buy-now-pay-later providers respond to probe into whether they encourage debt

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Players in the buy-now-pay-later business pushed back against federal regulators probing whether their services encourage customers to rack up excessive debt.

Affirm, Afterpay, and Klarna all said their companies welcomed the Consumer Financial Protection Bureau’s new inquiry into buy-now-pay-later, or BNPL, practices. But some rebuffed the regulators’ concerns about whether they were contributing to consumer debt. 

The bureau on Thursday asked the three companies, as well as PayPal and Zip (which did not respond to requests for comment), to answer a series of questions about how their products work, how the companies were using personal information they gathered, and whether they were bypassing regulations that apply to other financial products. The stock prices of Affirm, Afterpay, PayPal, and Zip all fell on the news. (Klarna is privately held.)

BNPL services have surged in popularity, giving customers what is often an interest-free way to spread payments for retail purchases over time. The services are similar to old-fashioned layaway programs, though the customer can take their items home right away. But consumer advocates say some BNPL providers rely on customers missing payments and racking up late fees to make money, with one recent study showing that about a third of BNPL customers did in fact miss payments.

Afterpay and Affirm said they were helping customers borrow responsibly. Afterpay, citing a study commissioned by the company, said its customers were half as likely to be delinquent as credit card users 90 days after a purchase. Affirm said it did not rely on late fees or even charge them.

“We welcome the CFPB’s review and support regulatory efforts that benefit consumers and promote transparency within our industry,” Affirm said in a statement. “For nearly a decade, Affirm has been advancing its mission to deliver honest financial products that improve lives, and we have never charged a late or hidden fee, ever.”

“Afterpay promotes and enables responsible payments by pausing accounts from future purchases if a payment is late, capping late fees, and not charging interest,” Afterpay said in a statement.

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